All posts tagged Pfandbriefe

A string of bailouts for governments and banks across Europe has left just one type of bank debt untouched: covered bonds.

First forged in 18th century Prussia, covered bonds are now a popular funding tool for banks from Norway to Spain. For years they have been arguably the dullest corner of the European bond markets. Safe, steady, and boring. Now, that dullness is an advantage, even more so now that other bank bondholders of all stripes have taken bailout hits.

No covered bond has ever defaulted, and investors prize them for their safety; the bonds are ‘covered’ by an underlying pool of loans–typically residential mortgages–and strict rules prevent them being soured with risky supporting assets. So far in the euro crisis, no covered bond holder has been asked to take a loss, unlike most other forms of bank debt.

That held true in Cyprus even when senior bondholders and uninsured depositors were being shaken down. So why weren’t any covered bonds on the table?